SEC Cleared on Its Probe Into Stanford Ponzi Scam

(CN) – The Securities and Exchange Commission should not face a class action for its failure to investigate R. Allen Stanford’s $7 billion Ponzi scheme, a federal judge ruled. Several investors in Stanford International Bank Ltd. sued the agency in 2012, seeking relief under the Federal Tort Claims Act. They said the SEC knew of the bank and Stanford Group Co.’s scheming, and that former Fort Worth regional enforcement director Spencer Barasch “was negligent and engaged in deliberate misconduct” by failing to investigate before the investors suffered massive losses. “Had Barasch not done as he did, none of the plaintiffs would or even could have invested with SIBL – its’ doors would have been shut – and the damages suffered by the plaintiffs would have been completely avoided,” according to their complaint. The federal government later moved to dismiss the suit for lack of subject matter jurisdiction, arguing the SEC enjoys complete discretion in deciding what matters to investigate under the discretionary function exception to the FTCA. U.S. District Judge Shelly Dick in Baton Rouge, La., agreed Friday, dismissing the action and declining to certify class. “While the alleged conduct of Barasch is disturbing, the Supreme Court requires this court to examine ‘the nature of the actions taken and whether they are susceptible to policy analysis,’ not ‘the agent’s subjective intent in exercising the discretion conferred by statute or regulation,'” the 12-page opinion states. “Further, even if Barasch abused the discretion conferred to him, the FTCA clearly states that the discretionary function exception applies ‘whether or not the discretion involved be abused.’ The decision by Barasch to initiate investigation, and to follow through once he indicated he would refer the matter, is clearly a matter of choice.” Dick also concluded the plaintiffs failed to allege facts showing the challenged actions are not grounded in public policy considerations. He agreed with the defense that a regulatory agency’s decisions over what to investigate are “quintessential” public policy decisions. “Because the SEC cannot investigate every matter, the agency must decide what leads to pursue and which are most likely to produce the greatest benefit to the public,” Dick wrote. “The government contends these decisions fundamentally depend on the agency’s policy considerations.” Stanford was convicted of securities fraud in Houston in 2012 and sentenced to 110 years in federal prison. Earlier this year, U.S. District Judge David Godbey in Dallas ordered Stanford to pay the SEC more than $6.76 billion in disgorgement, civil penalties and interest. In granting the SEC’s motion for partial summary judgment, Godbey disagreed with Stanford’s claim that his criminal trial was unfair.